JPMorgan fund picks NIO, Xpeng to prosper with Tesla even as Chinese EV makers may take years to become profitable

Tesla’s stock performance means investors should focus on production expertise, market share when investing in unprofitable Chinese EV start-ups

US-listed NIO, Xpeng saw a surge in EV deliveries in the fourth quarter while losses narrowed sharply from a year earlier

Reading Time:3 minutes

A Tesla electric vehicle (EV) speeding across a street in Shanghai on March 9, 2021. Photo: Reuters

Published: 8:30pm, 26 Apr 2021Updated: 8:30pm, 26 Apr 2021

Chinese electric-vehicle (EV) start-ups NIO Inc and Xpeng are best placed to rival industry leader Tesla for global market share because of their competitive technological advantages and strong shareholder support, according to JPMorgan Asset Management. Never mind that they may take years to earn their first dollars.

“They have three key competitive advantages, [namely] significant production expertise, strong software integration skills such as Advanced Driver Assistance System, and strong backing,” said Oliver Cox, Hong Kong-based money manager at JPMorgan Asset Management. He cited Tencent Holdings and Meituan as their powerful financial backers.

The two US-listed EV start-ups are setting the pace in the mainland China market, which is set to dominate the global EV industry in the coming years amid a bullish outlook painted by auto analysts. Under the “Made in China 2025” industrial plan, 20 per cent of new cars will be new-energy vehicles (NEVs), which encompasses pure electric, plug-in hybrid and fuel cell cars.

The view should come as a warning for Tesla, which has stumbled on several regulatory hiccups and a quality backlash. The Shanghai Auto Show also suggests Chinese EV makers are gunning for its scalp, with Geely Auto unveiling its Zeeker 001 model, and Volkwagen its ID.6 along with a slew of mini EVs.

Competition for market share is heating up as more than 500 players have entered the fray with the industry on the cusp of a major growth spurt, including new entrants like smartphone maker Xiaomi Corp. China recorded a 12 per cent jump in NEV sales to 1.17 million units in 2020 and sales almost doubled last quarter. UBS forecasts electric car sales will reach 6.6 million in 2025 and 18 million by 2030.

Cox co-manages the US$1.22 billion Pacific Technology Fund, which has risen 89.4 per cent over the past year, according to Bloomberg data. The fund added NIO and Xpeng some time between September 2020 and February this year, according to reports to fund holders, amounting to a combined 2.9 per cent of its net assets.

Shares of Beijing-based NIO and Guangzhou-based Xpeng have risen by 1,168 per cent and 122 per cent respectively over the past 12 months. The MSCI World Automobile Index, which tracks 20 of the world major players with US$1.17 trillion of capitalisation, advanced 137 per cent.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x